Good morning. Last night was interesting in the US markets (which the UK closely follows the next day), as there was a roughly 1% correction - which doesn't sound much, but you could really feel the tone change on CNBC for example - everyone now talking about taking profits, and valuations being too high, the need for a 10% correction to blow off the froth, etc. I think that's absolutely right - markets have gone up too far, too fast, to borrow a phrase (!), and in my opinion a correction is needed and would be a healthy thing, especially in the most speculative stocks, which have gone well into euphoria territory in some cases. So it will be interesting to see which stocks wobble today, as that will give clues as to what would really nosedive in a more serious downturn perhaps?
On this type of day, being a value investor, of course one can just sit back & relax. Value/GARP shares don't have any speculative froth in them, so holders don't tend to panic sell on a down day. Famous last words ...!
There are an unusual number of positive trading updates today, reflecting the undeniably strengthening economy. In terms of strategy this is something to keep at the front of our minds. Companies which are now trading well could end up beating market forecasts by a long way - due to the operational gearing which means that in many cases only a small rise in turnover can generate a big rise in profit. So an apparently high valuation can quickly become reasonable, or even cheap, if earnings forecasts are blown out of the water - and remember that in an economic recovery brokers tend to be too cautious, so forecasts are in some cases likely to be too conservative.
I like the trading update from Moss Bros (LON:MOSB). They had a remarkably good Christmas, with LFL sales for the five weeks to 11 Jan 2014 up a whopping 12.9%! That's amazing, given how tough economic conditions have been, and the terrible weather too. LFL sales for the 24 weeeks of H2 (it's a January year-end) were up 7.3%, so you can see that Christmas saw an accelerating sales trend.
Margins are down slightly,…
